While it is true that organizations across all industries experience a certain degree of inefficient administrative processes, the size and the cost of the problem in the US healthcare industry is colossal.
Indeed, administrative system inefficiencies have been estimated in the range of $100-150 billion annually, and the actual costs could be even higher. According to a position paper by the Medical Group Management Association, “simplifying our healthcare system’s administration could reduce annual healthcare costs by almost $300 billion.”
These structural administrative overhead inefficiencies ultimately increase healthcare cost and decrease the overall quality of public health.
Administrative Costs Are Unsustainable
Some of the causes are structural and include market fragmentation around multiple providers and the large number of payers. As a result, we have a complicated set of health delivery systems and a correspondingly complicated set of administrative and billing procedures that must be followed by the patient, provider and payers.
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Healthcare providers negotiate rates and enter into contract deals with dozens of health and benefit plans in order to be reimbursed for their services, essentially meaning that each health plan supports its own systems for underwriting, claims administration, provider network contracting and broker network management. The implementation of different systems and approaches for medical coding, billing systems and data feeds creates additional cost to the patient.
A 2011 study showed that if US physicians spent a similar amount of time as their Canadian counterparts on administrative work, the savings would amount to $27.6 billion annually. What’s more, healthcare staff in the US (nurses and medical assistants) spend nearly 10 times more hours on administrative support compared to their Canadian counterparts. The average US hospital spends nearly one quarter of its entire budget on billing and administrative costs.
Some additional quantifiable administrative inefficiencies include:
- American physicians spend nearly eight hours per week on paperwork
- Nurses and medical assistants spend 20+ hours per week per physician on administrative tasks not including data quality reporting
- There are about 14 to 35 health insurance employees per 10,000 plan enrollees
- Estimates on the percentage of clerical personnel in the US healthcare workforce range from 18 to 27 percent
A key step provider and payer agencies need to take to reduce healthcare costs and improve quality is to identify these administrative inefficiencies and use big data tools to significantly reduce these non-value added costs.
3 tips to reduce administrative costs
Right now, the healthcare administrative systems are a set of clumsy transactional systems that don’t play well together. Three areas associated with administrative healthcare costs that can be addressed by big data include:
- Addressing the costs associated with the administrative transactions to automate (and standardize) the medical approval and billing process between participants in the healthcare system.
- Enhancing the coding process between clinical diagnosis and the financial billing systems by upgrading to a modern code system.
- Improving the logistics of managing devices and supplies within the hospital and clinical environment.
Progress already underway
The current healthcare network consists of large chains of hospitals and linked physicians’ practices that have entered into blanket contracts and fee-for-service arrangements with insurance companies and other medical reimbursement providers. Hospitals (provider organizations) are complicated businesses offering a multitude of services to multiple stakeholders.
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At the same time, new entrants such as Wal-Mart and CVS’s Minute Clinic are coming into the market and offering convenient basic medical services right where you shop. If you have the flu you can see the nurse right around the corner at your favorite local drug store. These competitors are taking the low-end part of the healthcare market away from hospital and traditional healthcare providers.
These business pressures will have a growing impact on the bottom-line of large regional medical institutions. Wal-Mart and CVS are using their large-scale big data logistics services to market and deliver basic consumer level care at price-points that hospital have considered too low. These new entrants are interfacing directly into the insurance reimbursement systems as a healthcare provider and carefully managing their administrative costs to be more competitive than hospitals and physician-based practices. They also offer the consumer the convenience of easy access to the pharmacy right after seeing the care provider (usually a nurse).
Better Disease Coding
Right now the US healthcare system is planning on moving ICD-9 to the ICD-10 coding system. Standardized codes are used to improve consistency in recording patient symptoms and diagnoses across the healthcare system. The new ICD-10 system updates medical coding from approximately 13,000 to 68,000 codes. This will increase the specificity of the information conveyed in the codes and enable more fidelity for use in health IT systems for both financial and clinical decision support. However, HHS has currently proposed delaying ICD-10 compliance by one year until October 1, 2014.
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Improving the fidelity of the medical coding system and shifting healthcare claims processing from a batch model to a near real-time model will be a step in the right direction. This has been successfully done before. Wall Street moved from 7 days to settle trades, to hourly settlements. Big data processing can address the large amount of automation needed between the systems and back-office processes for healthcare administrative data.
Using big data to track assets and supplies
Another area of hospital administrative costs that big data can help support is tracking assets and supplies within the hospital environment. This ranges from ensuring the logistical supply chain is in place to ensuring medical supplies are properly stocked and ready for use. It also includes knowing where supplies are or will be needed in the case of emergency response to large-scale disasters. Hospitals including the Veterans Administration’s more than 150 hospital centers are looking at how to use Radio Frequency Identification (RFID) tagging to track assets and supplies.
Assets in the hospital need to be tracked on a real-time basis to know where supplies and equipment are and ensure efficient utilization rates. Some supplies like catheters need to be linked and tracked on a per-patient basis to ensure that they are not inadvertently forgotten on a patient and result in further medical complications. Tracking these medical supplies and linking with the patient’s record will significantly increase the administrative big data challenge within hospitals.
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Lots of healthcare administrative systems need to be integrated (interoperate) to make the health care claims and billing system work. Data from multiple sources needs to be integrated. While standardization will help, the reality is that there will always be some variety in the different systems. Big data integration can address the “mesh” of interoperability to support integration across the systems.
In the next article, I will address how big data can be used to reduce healthcare provider inefficiencies and improve the coordination of care across multiple healthcare delivery organizations.
Roger Foster is a Senior Director at DRC’s High Performance Technologies Group and advisory board member of the Technology Management program at George Mason University. He has over 20 years of leadership experience in strategy, technology management and operations support for government agencies and commercial businesses. He has worked big data problems for scientific computing in fields ranging from large astrophysical data sets to health information technology. He has a master’s degree in Management of Technology from the Massachusetts Institute of Technology and a doctorate in Astronomy from the University of California, Berkeley. He can be reached at rfoster@drc.com, and followed on Twitter at @foster_roger.
